In 2013, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2013 and were estimated at $1.2 million in 2014
Because Jen and Larry were selling premium frozen yogurt containing high-quality ingredients, each small cup of yogurt sold for $3 and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen’s and Larry’s salaries and expenses for an accountant and two other administrative staff, were estimated at $180,000 in year 2014. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in year 2014.
An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in Lower Downtown (known as LoDo) of 450,000 occurred at the beginning of 2013 along with 50,000 being invested in inventories. An additional equipment investment of 100,000 was estimated to be needed at the beginning of 2014 to make the amount of yogurt forecasted to be sold in year 2014. Depreciation expenses were expected to be $50,000 in year 2014 and Interest expenses were estimated at $15,000. The tax rate was expected to be 25 percent of taxable income.
A. How might the venture acquire and finance the new equipment that is needed?
B. Identify potential government credit resources for the venture.